With the Hi-Fi '99 show just
around the corner, i felt it would be of benefit to the Enjoy the Music readership to
reprint Gary Shapiro's, President of the Consumer Electronics Manufactures Association
(C.E.M.A.), keynote address:

Suggestions for the Digital Age

Keynote Press Presentation

Hi Fi 1998

As Prepared For Delivery June 11, 1998

Gary Shapiro
President
Consumer Electronics Manufacturers Association

Several hundred years from now when historians study our era, they will not focus on
Madonna, the Spice Girls, O.J. or even Bill Clinton. We have no great philosophers,
religious leaders, poets or musicians which will leave a defining dent in the lengthy
continuum we call history. Rather, our era will be remembered and defined as the time when
we as a society shifted to the digital age.

Now I recognize that for some of you digital is not all its cracked up to
be. For many, vacuum tubes, turntables and analog records are far superior to their
digital brethren. I respect this view just as I understand that for many people, riding a
horse is a far superior experience to driving a car.

But the fact remains that we are in the midst of the digital revolution.
Indeed, it's fair to say we are about to start the third wave of this phenomenal
revolution. The first wave was our entry into computers which relied on a digital stream
of zeros and ones. It started slowly in the 1960s and '70s but today the person without a
computer or even E mail defines himself as behind the times.

The second wave in the digital revolution was the move to digital audio.
The introduction of the compact disk 15 years ago revolutionized our industry and changed
the way Americans listen to and appreciate music. Today, two out of three Americans listen
to music an a CD.

The third wave in the digital revolution will be the move to digital
video. High definition television (HDTV) is the highest manifestation of digital
television and will be introduced in limited quantities late this year. HDTV is glorious
and I believe consumers will quickly embrace its wide screen, crisp picture and superior
sound.

At the Consumer Electronics Manufacturers Association, we have spent a
dozen years preparing for the launch of HDTV. This is consistent with our mission, which
is a simple one: to grow the industry. We identified HDTV as a driver technology which
will enhance and enrich the consumer experience and help drive the sale of TV sets and
related products in the 2lst century. Accordingly we've invested over 10 million dollars
to promote the concept of HDTV before policymakers and to test digital television to
ensure we had the best system possible. We've undertaken many steps, including the
creation of WHDTV, the model HDTV station based at the NBC affiliate in Washington DC,
WHDTV was created with broadcasters to teach them and electronics manufacturers how to
make HDTV work.

HDTV is the third wave of digital - but it is not the final wave. Digital
electronics is also affecting telecommunications, medicine and scientific research, but
those are areas for another day's discussion. I want to talk about consumer electronics
products. For audio, video and computer products, I suspect we are still at the beginning
of a long digital journey where products will continue to be introduced, improved and
appreciated by the world's consumers.

Although we are in the midst of a digital revolution it may not seem that
way. The industrial revolution, the introduction of the plane and even the automobile did
not suddenly transform the daily lives of people - rather the lifestyle and societal
changes they wrought took years to be felt by the average citizen.

You, as journalists, have a special role in the defining change of our
times as you are chronicling our transformation in this revolution, both through reporting
on the products which physically evidence the revolution, and through the ways they
enhance our lives. Your words convey the psychic and life transforming benefits of our
products - and help initiate the uninitiated.

Although I am obviously enthralled with the concept of the digital
revolution I recognize that the phrase and concept may be getting as overused as Viagra -
so I will shift from the philosophical to the practical I would like to offer the audio
industry some specific suggestions to help it thrive and prosper in this digital age.

1. Focus on Home Theater

CEMA latched on to home theater in the early 1990s as something worth
conveying to the American public. We used journalist Len Feldman as our spokesman at home
shows across the country where we demonstrated home theater. We provided research on the
value of home theater to the media, including how it supports a closer family. We worked
with interior designers and home builders and we did everything possible to expand
President Herbert Hoover's adage from, "a chicken in every pot" to "a
theater in every home".

We have succeeded to a degree. One in seven American homes now has a home
theater system.

To some in the two channel world, home theater, may be incompatible with
good audio. Why let video distract you from the audio experience?

Well it certainly makes good business sense. The great untapped market for
audio products has not been interested in audio for audio's sake. Virtually all new
component stereo households formed in the last five years (now about 56 million) bought
equipment to use with their home theaters - not as stand alone audio.

Indeed, the gradual willingness of the high end world to embrace home
theater is reflected in this forum. I am speaking at "Hi Fi - The Home Theater and
Specialty Audio Show."

2. The Experience Matters

Despite my strong belief in home theater, I with equal passion believe that audio provides
a unique emotional experience which differentiates our products from those of any other
industry. Music evokes emotion and music that sounds great enhances the experience.

Yet if you read many of our publications we are selling specifications and
using a language and a secret handshake intimidating to all but the technical oriented.
Let's put it in English!

The audio experience is more important than the video experience. Our
research shows that a fair picture with great sound is preferred by consumers to a great
picture with fair sound. Consumers may be price conscious, but they must experience our
products to appreciate their value. So sell the experience, not the specs!

3. Prosper from HDTV

Today, the TV is typically the weakest link in the home theater. As soon
as a consumer buys a HDTV set, that will immediately change. Consumers will be going in to
stores just to see HDTV. This is an opportunity to share great sound!

4. Broaden the Audience

One audio industry executive told me that we shouldn't waste our time on
any one other than rich older males as they buy all his products. Well our research shows
that women are great influencers in 50% of CE purchase decisions. We are talking about
products that some people view as furniture and as part of a lifestyle. I suspect
marriages today are more of a partnership than 20 to 30 years ago and big purchase
decisions are no longer made by just one spouse.

Of course, our country is rapidly changing its demographics. If you ignore
large groups of Americans you do so at your peril.

Indeed next week CEMA is hosting an event in Atlantic City focusing on
high quality sound for tens of thousands of younger Americans. FUSE is aimed at Gen X and
will include live bands, in line skating and a truck give away surrounding an exhibit
floor where scores of companies will demonstrate their hottest car audio products. We are
trying to focus these younger consumers on the fact that music can and should sound great
in cars.

5. Data Delivers

CEMA's job of increasing industry sales relies heavily on getting the
general media to focus on our products. We do pitch lifestyle stories, but many
publications want hard data to identify trends or create graphs. That's why we are proud
of CEMA's effort to measure the high end industry. Based on actual reported data from
manufacturers we estimate the high end market grew seven percent last year to over $1.1
billion. Exports of high end audio grew ten percent and reflect some 40 percent of the
sales of the companies we surveyed. We will be collecting data again this year from
companies and will report to you on the results.

Our research in this area along with our financial operating ratios study
is important in establishing high end as an industry worthy of investment by bankers,
retailers and the media. An industry cannot be considered growing and healthy unless it is
capable of being measured.

6. Computers Count

While many of us suspect that the intense enthusiasm expressed by many
"geeks" for computers has displaced some of the enthusiasm for high end audio,
we must accept the reality that computers are a related and potentially symbiotic part of
the consumer spending mix.

Our research shows that at least 15 million adults do most of their audio
listening through their computers. The audio industry must press to keep audio components
sold in conjunction with computers branded. The fact is that more than eight in ten people
who listen to a CD-ROM drive in their computer use the CD-ROM to listen to music.

7. Pay Attention to Policy

Last Friday I testified before Congress on legislation which could affect
our ability to make and sell audio products. The legislation responds to concerns from the
music and movie industry that new digital technologies allow an individual to ship
zillions of perfect copies around the Internet with a flick of a computer key. These are
well-founded fears and should be addressed.

Unfortunately, the legislation addressing these concerns gives copyright
owners new rights so that they can sell products which are incapable of being accessed or
copied. In other words, makers of hardware would have to build products which respond to
any copyright protection scheme. This means we are moving to a pay per use world. This
legislation cleared the Senate and an important House Committee. Sometime next week the
House Commerce Committee is expected to vote on this legislation. If you want to know more,
the Digital Future Coalition web site is offline so check
out what Wikipedia has to say.

How many in the audio industry know their legislators, invite him or her
to visit a store or factory? If we are not part of the process we get hurt and we are
getting hurt in this Congress as we can not match the extraordinary campaign contributions
made by the copyright interests.

8. Digital Radio Rocks

CEMA has spent many years investing in digital radio research and testing
as we have the view that consumers want high quality sound on their radio. Research of DSS
owners in 1997 revealed that they didn't buy DSS for the digital music, but 69% were
listening to the music an average of 10.5 hours per week. Sound quality was the most
important reason (52%) they preferred the music, ranking ahead of " no
commercials" (31%).

I will spare you the history of seven years of digital radio research and
political wrangling. Suffice to say that two companies have spent millions of dollars to
buy spectrum for a satellite-delivered national digital radio service. We had questions as
to whether this spectrum would work but the FCC relied on the fact that these companies
wanted to put hard dollars up on the belief they would. A year later, I am not aware of
any radio manufacturer who is committed to building radios for this service.

Local digital radio service is an equally complex debate. A successful
service would equalize AM and FM sound quality and, absent a new grant of spectrum, must
be able to coexist for some time with the existing analog service. While creative
technologies have recently been proposed, we are concerned that they no longer purport to
be "CD quality" but something more vague like "near CD quality" or
"digital quality".

9. Trade Shows Make a Difference

This show, the CES and most other trade shows serve to expand the market
by bringing buyers, sellers and media together. They are efficient and essential parts of
any company's integrated marketing program.

In 1981 I attended my first CEMA Board meeting. The Board Chairman Ray
Gates of Panasonic opposed increasing exhibit space costs as he said it was not an issue
for his company - but he argued we must keep the CES low cost and affordable so anyone
with a good idea can inexpensively exhibit at the show and potentially attract press,
retailers and investors. He said the best ideas come from the garages of America.

We have tried to follow this philosophy in terms of how we produce the
show. Our staff has been inspired by this mission, especially when industry reminds us of
how we make a difference. Recently Thiel's Kathy Gornik captivated our staff with her
story of Thiel's first CES where they had an idea and a prototype but no money for food
and they got enough orders at the CES to successfully launch the company.

We have just entered a long term contract with the Alexis Park and the
hotel will continue to make improvements so that by the 2000 CES we will have a new
building available to us. Larry Archibald called the Alexis Park "a world class
venue" and I am pleased that we continue to improve our services to the specialty
audio industry.

10. Get Involved

Our Specialty Audio Subdivision has grown from a handful of members in
1993 to 178 members today. We have several active subcommittees and recently held a Audio
Industry Summit which had 48 executives from 36 companies. The participants agreed that we
would focus on expanding the industry in some non-traditional ways which may be announced
shortly.

Our association is owned by and exists for the industry. As we shift in to
the digital age, every industry participant has the opportunity to prosper and make a
difference.

There will be winners and losers in the digital revolution. What will
separate them may be their awareness, their openness and their involvement.

I have offered my suggestions for success in this revolution. I wish you
well and I look forward to any questions you may have.